Service Tax on practising Chartered Accountants was introduced in 1998 through Notification No. 53/98-ST dated 7th October 1998 and the effective date of applicability was 16-10-1998. Then, the exemption Notification No.59/98 –ST dated 16-10-1998 was issued which was rescinded vide Notification No. 2/2006- ST dated 1-3-2006. Later, notification No.25/2006 –ST dated 13-07-2006 was issued providing exemption to the professionals from the statutory representative services. This exemption has also been rescinded by Notification No. 32/2011-ST, dated 25-4-2011 (w.e.f. 1-5-2011).

Section 65 (105) (s) of the Finance Act, 1994 defines the ‘taxable service’ in case of a practising Chartered Accountant. The definition w.e.f 16.6.2005 defines the taxable service as:

“Taxable service means any service provided or to be provided to a client, by a practising chartered accountant in his professional capacity, in any manner.”

Section 65(83) of the Act defines a practising Chartered Accountant as follows:

“Practising Chartered Accountant” means a person who is a member of the Institute of Chartered Accountants of India and is holding a certificate of practice granted under the provision of the Chartered Accountants Act, 1949 (38 of 1949) and includes any concern engaged in rendering services in the field of Chartered accountancy.”

The definitions as given above show that the persons liable to pay service tax under this head must be:

1. Member of the Institute of Chartered Accountants of India

2. Holding a certificate of practice under the provisions of Chartered Accountant Act 1949.

3. It includes any concern engaged in rendering services in the field of Chartered Accountancy.

Up to 31.03.2012, as per Rule 7 of Point of Taxation Rules, 2011 determination of point of taxation in case of practising Chartered Accountant was date on which payment is received.

However, as per Notification No. 4/2012 – Service Tax dated the 17th March 2012 has amended the Point of Taxation Rules 2011 w.e.f. 1st April 2012 amending Rule 7 which applied to individuals or proprietary firms or partnership firms (including limited liability partnership) providing taxable services up to a turnover of Rs 50 Lakh in a financial year provided the taxable turnover did not exceed this limit in the previous financial year as pay service tax on receipt basis. Therefore, now the position is same for chartered accountant firm having turnover of Rs. 50 lakhs or below but for large CA firms having the taxable turnover above Rs. 50 lakhs the onus to pay service tax is shifted to invoice basis.

As from 1.4.2012 the determination of point of taxation is on the basis of invoices for large CA firms. For this several representations were made to CBEC requiring clarification of invoices issued on or before 31st March 2012 where the payment has not been received before 1st April 2012. In this behalf Circular No.154/5/ 2012 – ST dated 28th March 2012 was issued clarifying the determination of point of taxation i.e. the point of taxation shall be the date of payment. Thus even though the Invoices are issued charging service tax at the rate of 10.3 %, payment of service tax will be at the rate of Rs. 12.36%.

Suppose, an invoice was issued by the practising Chartered Accountant charging Rs.20000/- plus service tax Rs.2060/- on 1.03.2012. The payment of which is received on 5.4.2012. As the payment is received after 31.3.2012 the rate of service tax applicable will be 12.36%. In our illustration he has to pay service tax of Rs. 2427/- (Rs.22060/112.36 * 12.36). The difference of Rs. 367 will be borne by him.

Payment of Service Tax

Presently, service tax payment has to made Quarterly but as proposed in the draft circular , payment of service tax has Quarterly (if tax payment is below or at Rs. 25 Lakhs) and Monthly (if tax payment is above Rs. 25 Lakhs).

Filing of Service tax return

Presently, service tax return has to filed Half yearly i.e by 25th April and 25th October but as proposed in the draft circular , service tax return has to be filed Quarterly (if tax payment is below or at Rs. 25 Lakhs) and Monthly (if tax payment is above Rs. 25 Lakhs).

Service Tax is a tax on services and not on professional receipts or professional bills for that matter. In my opinion, if the services are rendred prior to 31st March and bills are also raised prior to 31st March, Service Tax liability will be 10.3% irrespective of the date of payment.